Sometimes the cure is worse than the ill: an occasional look into the life of LSE DESTIN 2010

Why It Makes Sense to Grow Bananas in the Desert? Elite Bargain and State Stability

Growing Banana. In 2000 Jordan entered the WTO and lifted a series of subsidies allocated for crops, which are not allowed by the WTO regulations. It was left however the chance to protect one crop produced in Jordan and the government picked bananas. If one thinks that bananas require a lot of water to grow (one kg of banana requires 1000 liters of water) and that Jordan is the fourth most water insecure country in the world one ponders why the government chose such water intensive crop (see post about water in Jordan here). One will not find the answer in the economic realm: protecting banana just does not make sense from an economic point of view. One needs to look at the realm of politics and at the concessions that the state distributes to powerful groups in the country in order to appease them. Shielding bananas from the competition of world market is one of the tool through which the state seeks to enfranchise groups who wield political, economic and military power. The rest of the post will lay out why one should pay considerable attention to how elites bargain and will shed light on how such elite bargain is fundamental to ensure state stability in every country taking Jordan as an example.

How Elite Bargain Matters. The Crisis State Research Centre argues that groups who wield military, political and economic power negotiate, fight and cooperate to set the rules of the games. These elites are the decision makers yet their influence stems from their ability to mobilize and enfranchise the masses. How the interaction between elites takes place determines whether a state is fragile, stable or resilient. Some elites use violence as a way of interaction thus creating a situation of widespread lawlessness. In other countries on the other hand the state (the formal elite) offers economic rent to influential groups so that the bargain is peaceful.

The research of the Crisis State Research Center shows that those formal elites who have managed to entrench other elites in a bargain with the state have ensured stability to the country. Elites are locked in a bargain with the state when the latter create and distribute economic rents to the former: the states can tolerate high level of tax evasion or can impose relatively low rates of taxation on agriculture as a way to benefit landowners. Jordan is an example of how formal elites who captured the state have created and deployed economic rents (see subsidies for bananas) to other elites to ensure state stability. To understand how the bargain works can be instrumental in understanding how crisis and fragile state can move towards stability.

The first tenet of the state bargain with key elites was the institution of electoral competition for the parliament. Being elected in the parliament became tantamount to gain the ability to access economic rent created by the state. Such rent took the forms of public jobs, subsidies, regulatory protection and state contracts and were distributed as a reward for the support to the monarchy. The elections offered a mean to decide who got what and offered legitimacy to the new allocation. Elections were however carefully crafted so that constituencies traditionally loyal to the monarchy (in particular tribes and clan generally described as East Bankers) were advantaged vis-à-vis less loyal groups such as independent political parties: the essence of the elite bargain is to incentivize and reward the loyalty of key elites.

The second tenet of the new elite bargain was an IMF sponsored program of economic liberalization which could please the business community (another key elite) with deregulation, privatization and tax exemption . Economic reforms such as the introduction of sale taxes or privatization of public enterprises had to be however watered down and phased in so that the other key constituency (poor East Bankers) would not be hit too hard. The Hashemite monarchy used in other words both political and economic power to favor key elites and by doing so it was able to hold the unit (i.e. the state) together.

Bargain and Stability Today. The elite bargain continues today as the regime relies on its traditional constituencies: it manipulates for example the electoral system by matching rural electoral constituencies with tribal domains in order to favor rural East Bankers tribes. The regime (or formal elite) continues therefore to be successful in creating political (gerrymandered electoral districts) and economic carrots (banana subsidies) which ensure the support of key constituencies to the state. The way in which the elite baragin is struck underpins Jordan’s stability today. Many argue against rigged political elections and against the persistence of economic rents such as the banana subsidies Yet without this bargain elites would possibly fall out and Jordan’s fragile stability would be disrupted: this is a counterfactual that many Jordanian are wary of and a trade off other fragile countries are striving for.